IPM: Transfer of Funds in Business (PDF)

**IPM** **CHAPTER 3** **TRANSFER OF FUNDS IN BUSINESS** **TRANSFER OF\ FUNDS** - **[The movement of assets, funds, or ownership rights from one place to another. ]** - It may require an exchange of funds when it involves a change in ownership - Refers to the movement of an accoun...

**IPM** **CHAPTER 3** **TRANSFER OF FUNDS IN BUSINESS** **TRANSFER OF\ FUNDS** - **[The movement of assets, funds, or ownership rights from one place to another. ]** - It may require an exchange of funds when it involves a change in ownership - Refers to the movement of an account from one bank or brokerage to another. **Transaction Types** **BANK TRANSFER** - **[Transferring of funds from one account to another. ]** - Does not have to be within the same bank, it can be an [interbank transfer]. - Funds are normally transferred for purposes of financial planning, better investment rates,o make payments for goods or services, and etc. **Brokerage Transfers** - **[BROKERAGE]** ***provides intermediary services to various areas (investing, obtaining loan, purchasing real estate)*** - Investors normally transfer funds and assets from within or outside their [brokerage accounts.] - An investor deposits funds into their brokerage account, and the brokerage firm transacts orders for investments such as stocks, bonds, mutual funds, and exchange-traded funds or ETFs on their behalf. - **Transfers between people include wires, or e-payments like PayPal.** - **In crypto-economy, funds and cryptocurrencies are transferred between users to public addresses where funds can be accessed with a private key unique to users.** - **A transfer of funds, securities, etc. that is [not directly from the source.]** - **Involves [an intermediary or third party.]** - **Investment Banker** - **Financial Intermediary** - **Financial intermediary is an [institution that acts as the middleman between savers and firms.]** - Financial intermediary will use the funds from the saver to purchase other securities from other organization and hold it for gain. **CHAPTER 4** **TYPES OF MAJOR ACCOUNTS** **ACCOUNTS** Account is [**the basic storage of information in accounting**.] **It is a record of the increases and decreases in a specific item of assets, liability, equity, income or expenses. An account may be depicted through a "T-account".** A "T-account" is called as such because it resembles the letter "T" which have a three parts, namely: Account title, Debit side and Credit side. **There are 5 elements of the financial statements** ***[Assets]*** ***[Liabilities]*** ***[Equity ]*** ***[Income ]*** ***[Expenses]*** **ASSETS** **Are the economic resources you control that have resulted from past events and can provide you with future economic benefits.** **LIABILITIES** **Liabilities are present obligations that have resulted from past events and can require you to give up resources when settling them** **EQUITY** **It represents the shareholders\' stake in the company, identified on a company\'s balance sheet. The calculation of equity is a company\'s total assets minus its total liabilities.** **INCOME** Is **increases in economic benefits during the period in the form of increases in assets, or decreases in liabilities**, that result in increases in equity, excluding those relating to investments by the business owner. **Income includes both revenue and gains** **Revenue Arise in the course of the ordinary activities of a business,** for example, sales or service fees. **Gains** Arise in the course of the ordinary activities of a business, for example, sales or service fees. **Represent other items that meet the definition of income and may or may not arise in the course of the ordinary activities of an entity.** **Expenses** **are decreases in economic benefits during the period in the form of decreases in assets, or increases in liabilities, that result in decreases in equity, excluding those relating to distributions to the business owner.** **Expenses include both expenses and losses** **Expenses Arises in the course of the** **ordinary activities of business.** **Losses Represent other items that meet the definition of expenses and may or may not arise in the course of ordinary activities of the entities.** **The five major accounts are classified according to the financial statement where they appear as follows :** **BALANCE SHEETS ACCOUNTS** **Assets** **Liabilities** **Equity** **INCOME STATEMENT ACCOUNTS** **Income** **Expenses** **The five major accounts are classified according to the financial statement where they appear as follow** **BALANCE SHEETS ACCOUNTS** **The balance sheet (or the statement of financial position) is one of the components of a complete set of financial positions of a business.** **INCOME STATEMENT ACCOUNTS** **The income statement (or the statement of profit or loss) is a sub-component of the statement of comprehensive income, which is also one of the components of a complete set of financial statements.** The following are the common account titles and their descriptions : **BALANCE SHEET ACCOUNTS** **ASSETS** Cash Includes money or its equivalent that is readily available for unrestricted use, examples are cash on hand and cash in banks. **Account Receivables** Receivables supported by oral or informal promises to pay. **Allowance for bad debts** The aggregate amount of estimated losses from uncollectible accounts receivable. Another term is "Allowance for doubtful accounts". **Notes Receivables** Receivables supported by written or formal promises to pay in the form of promissory notes. **Inventory** Represents the goods that are held for sale by a business. For a manufacturing business, inventory also includes goods undergoing the process of production and raw materials that will be consumed in the production process. **Prepaid Supplies** Prepaid Rent Prepaid Insurance Represents the cost of unused office and other supplies. **Prepaid Rent** Rent paid in advance. **Prepaid Insurance** Cost of insurance paid in advance. **Land** The lot on which the building of the business has been constructed or a vacant lot which is to be used as a future planned site. Land is not depreciable. **Building** The structure owned by a business for use in their operations. **Accumulated Depreciation - Building** The total amount of depreciation expenses recognized since the building was acquired and made available for use. **Equipment** Consists of various assets such as ; machineries, transportation equipment, Office Equipment, Computer Equipment, and Furniture and Fixtures. **Equipment - Accumulated Depreciation** The total amount of depreciation expenses recognized since the equipment was acquired and made available for use. **LIABILITIES** **Accounts Payable** Obligations supported by oral or informal promises to pay by the debtor. **Notes Payable** Obligations supported by written or formal promises to pay by the debtor in the form of promissory notes. **Interest Payable** Interest incurred but not yet paid. Interest payable arises from interestbearing liabilities. For example, you will incur interest on your bank loan. **Salaries Payable** Salaries already earned by employees but not yet paid by the business. **Utilities Payable** Utilities, like electricity, water, internet, cable TV, etc. **Unearned Income** Items related to income that were collected in advance before they earned. After the earning process is completed, these are transferred to income. **Equity** **Owner's Drawings** This account is used to record the temporary withdrawals of the owner during the period. At the end of the accounting period, any balance in this account is closed to the 'Owner's Capital' account. **Owner's Capital** The Owner's capital (or Owner's equity) are the residual amount after deducting liabilities from assets. **The Owners Capital Account is** **INCREASED by:** **Investment or contribution by the owner.** **Income or Profit earned by the business.** **DECREASED by:** **Withdrawals or distributions to the owner** **Expenses or Loss incurred by the business** **The following are the common account titles and their descriptions :** **INCOME STATEMENT ACCOUNTS** **INCOME** Service Fee Revenues earned from rendering services (services of a spa, a beauty salon). **Sales Revenues** earned from the sale of goods (sale of barbecue, of souvenir items). **Interest Income** Revenues earned from the insurance of interest-bearing receivables. **Gains** Income earned from the sale of assets (except inventory) / from enhancement of assets or decreases in liabilities that are not classified as revenue. **EXPENSES** **Cost of Sales or Cost of Goods Sold** Represents the value of inventories that have been sold during the accounting period. **Freight-out** Represents the seller's cost of delivering goods to customers. Other terms are 'delivery expense' , 'transportation-out' , and 'carriage outwards'. **Salaries Expenses** Represent the salaries earned by employees for the services they have rendered during the accouting period. **Rent Expense** Represents the rentals that have been used up during the accounting period. **Utilities Expense** Represents the cost of utilities that have been used during the accounting period. **Supplies Expense** Represents the cost of supplies that have been used during the period. **Bad Debt Expense** The amount of estimated losses from uncollectible accounts receivable during the period. Other term is "doubtful accounts expense". **Depreciation Expense** The portion of the cost of depreciable asset that has been allocated to the current accounting period. **Advertising Expense** Represents the cost of promotional and marketing activities during the period. **Insurance Expense** Represents the cost of insurance pertaining to the current accouting period. **Taxes and Licenses** Represents the cost of business and local taxes required by the government forthe conduct of business (Mayor's permit. other percentage taxes, community taxes). **Miscellaneous Expense** Represents various small expenditures which do not warrant separate presentation. **Transportation Expense** Represent the necessary and ordinary cost of employees getting from one workplace to another which are reimbursable by the business (example, reimbursable taxi fares of employee running some errands and those who are working sent to seminars.) **Travel Expense** Represents the cost incurred when traveling on business trips, e.g., out of town travel costs of employees sent to seminars. **Interest Expense** Represents the cost of borrowing money. It is the price that a lender charges a borrower for the use of the lender's money. Other terms for interest expense are finance costs and borrowing costs. Interest Expense and Interest Income are opposites. For example, you will incur interest expense on the money you borrowed from Mr. Bombay. On the other hand, Mr. Bombay will earn interest income. **Losses Expenses** which may or may not arise from the ordinary course of business activities. Losses may arise from : **a. Sale of Assets**, other than inventory, at a sale price that is less than the carrying amount. **b. Decreases in the value of assets due to destruction, damage,** obsolescence and other changes in values caused by market factors, e.g., loss on fire, earthquake, storm, and other calamities, decrease in the value of foreign currencies held due to changes in exchange rates. **THE USES OF MAJOR ACCOUNTS** **ASSETS** Resources owned by an entity that provides future economic benefits. \- Generate revenues \- Secure loans \- Facilitate operations **INCOME** Money earned by an entity from its business activities or investments. Uses: \- Fund operational expenses \- Reinvest in the business \- Save or invest **EQUITY** The residual interest in the assets of an entity after deducting liabilities. It represents ownership value. -Reflect ownership stake \- Measure financial health \- Fund growth or expansion \- Provide a cushion against losses **EXPENSES** Costs incurred by an entity in the process of earning income. Uses: \- Reflect operational costs \- Analyze profitability \- Manage budgeting \- Report financial performance **LIABILITIES** Obligations or debts that an entity owes to external parties. Uses: \- Finance operations or growth \- Purchase assets \- Manage cash Flow **THE PURPOSES OF MAJOR ACCOUNTS** **ASSETS** **Purpose**: Assets are used to support and drive the operations of a business or individual. They help in generating revenue, enhancing productivity, and providing financial stability**.** **INCOME** **Purpose:** Income represents the earnings from business activities or investments. Its purpose is to provide funds for covering operational expenses, investing in future growth, and generating profits. **EQUITY** **Purpose:** Equity represents ownership interest in the assets of a business after liabilities are deducted. Its purpose is to provide a measure of financial stability and ownership value. **EXPENSES** Purpose: Expenses are costs incurred in the process of earning income. Their purpose is to support the day-to-day operations of a business, maintain and improve assets, and ensure that revenue is generated efficiently. **LIABILITIES** Purpose: Liabilities represent obligations or debts that must be settled in the future. Their purpose is to finance operations, acquire assets, or manage cash flow. **MAJOR ACCOUNTS ARE IMPORTANT** **ASSETS** Assets represent the resources a business or individual owns, which are essential for generating revenue and achieving financial goals. They support operations, facilitate growth, and provide value and stability. **INCOME** Income is the primary source of funds for a business or individual, used to cover expenses, invest in growth, and create profits. It's vital for maintaining financial health, driving business operations, and funding future opportunities. **[EQUITY]** Equity represents ownership value in a business and is a key indicator of financial health. It helps in assessing the net worth of an entity and provides a buffer against losses. **EXPENSES** Expenses are necessary for running daily operations and producing goods or services. Understanding and managing expenses is crucial for profitability and financial management. **LIABILITIES** Liabilities are financial obligations that must be settled, impacting cash flow and financial stability. They are important for financing operations and growth but must be managed carefully to avoid over-leverage. **THE RELEVANCE OF THE MAJOR ACCOUNTS** **ASSETS Relevance:** Assets are critical for generating revenue and supporting business operations. They provide the means to produce goods or services, invest in future opportunities, and secure loans. **INCOME Relevance:** Income is the lifeblood of any business or individual, as it represents the primary source of cash flow. It's essential for covering expenses, reinvesting in growth, and achieving financial stability. **EQUITY Relevance:** Equity represents ownership value and financial health. It indicates the net worth of a business or individual after liabilities are deducted from assets. **EXPENSES Relevance:** Expenses are the costs associated with running operations and generating income. Managing expenses effectively is crucial for maintaining profitability and financial health. **LIABILITIES Relevance:** Liabilities represent financial obligations and debts. They are relevant for understanding cash flow requirements, assessing financial risk, and planning for debt management.